The Importance of Small Decisions

You may think that each small decision you make doesn’t matter. But our small day-to-day decisions can have a disproportionate affect on our lives.

The Tyranny of Small Decisions

In the late 1960s, economist Alfred Kahn described how a series of small decisions can sometimes trap well-meaning individuals into a large and terrible decision. He described this effect as the Tyranny of Small Decisions.

Anyone who has dreaded opening their credit card bill has been the victim of the tyranny of small decisions. Very few individuals run up their credit bill with one extravagant vacation or diamond necklace. We spend a few dollars here and there, never thinking that using the credit cardmakes that big a difference. But it clearly does, considering how many Americans are facing unmanageable credit card debt.

And that’s part of what is so insidious about the tyranny of small decisions. If you had spent all of that money on one large purchase, you would at least have something of worth to show for the credit card bills and headaches. But if you’ve spent your money in dribs and drabs, you can’t even point to where that money has gone.

Several years ago, a friend told me about how she thought $2000 had been stolen out of her bank account. After some research, she realized that she herself was the thief. A month of $50 purchases here and there, dinners out, a gourmet coffee every day, and occasional runs to the ATM for cash, and my friend had stolen $2000 from herself. She didn’t realize what size damage she was doing to her account because each of these small decisions was so easy to make.

The Positive Power of Small Decisions

On the other side of the coin, however, is the power that small decisions can have to improve our lives. Anyone who has ever dieted and kept the weight off knows that making small lifestyle changes over the course of a lifetime make a much bigger difference than an extreme diet kept for a few weeks or months. It will be slower weight loss if you decide to incorporate more vegetables into your diet and more activity into your day—but it will be longer lasting and easier to maintain weight loss.

Small money decisions can be equally life-changing. The latte factor is a well-known phenomenon in the realm of personal finance. This idea states that money you spend on lattes add up, so cutting out these small luxuries should be a relatively painless way to save money.

Since most people (my friend notwithstanding) don’t actually plunk $5 down for a coffee every single day, it can be tough to come up with other ways to use small decisions to help your finances. But any small change in how you handle your money can add up. For example, I know a couple who made a rule to discuss every purchase over $25. This means they have to think about purchases before they buy, which cuts down on a lot of impulse spending and unnecessary buying.

Whether you’re focusing on food, exercise, money, or even your environmental impact, think about your choices, no matter how small the decision. It can make a huge difference.

How Small Decisions Have Changed My Life

About three years ago, my husband and I decided to start paying for our purchases with cash. We thought it might make some purchases easier. We never had any idea what big changes would come from using cash.

It started when we noticed that we ate out a lot less and were more likely to invite people to our house to socialize rather than go out. It just hurt so much more to count out the cash to pay, so we wanted to minimize the pain.

After a year or two, we noticed that we had more money in our accounts, so we thought we’d do an experiment. We’d live off my husband’s income for a little while and use mine to pay off our only major debt, a $28,000 home equity loan. If it didn’t work, we could always quit.

A year later, we’d paid off the debt and we were expecting our son. Since we’d “practiced” living off one income for a year, we knew we didn’t need my income, so I have been able to be a stay-at-home-mom. All of this came from the “small” decision to pay for our purchases with cash.

Emily Guy Birken is a freelance writer and mother who loves to share tips on managing the family budget and other personal finance tips. You can find her musings on parenting and life at The SAHMnambulist.

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Congratulations on being able to live off a single income! I have not been able to make the jump to the “cash-only” lifestyle, but I’ve given it a great deal of thought. I agree that the small decisions can have huge implications for us later. People don’t really realize how easy it is to change the equation of their lives by manipulating the variables just a little …

@MyMoneyDesign, thanks for the kind words. We have found that the cash only lifestyle (which is not entirely cash only–we do have a credit card that we use for some purchases) has really helped in reducing marital squabbles, too. We keep our accounts separate, so we had a hard time remembering who had paid for what before we were paying with cash. Now, we know that the Chinese food we order is going to paid for from the Restaurant envelope. It’s made our money much more ours.

We do the money envelope system that Dave Ramsey describes, although we have a lot more than the 12 envelopes he suggests. I’m sure you’ll find a set up that works for you. I actually find it kind of fun to get the money from the bank after each paycheck and distribute it to each envelope. It helps me anticipate how we can spend the money–rather than just spending without thinking about it.

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